A YEAR OR MORE: The high CosT of Long-Term UnempLoymenT potx

1 exeCutive summaryanD lonG-term unemPloyment FiGure 1: long-term unemployment, January 1948–march 2010 FiGure 2: overall unemployment rate, by age FiGure 3: unemployed for one year or m

FISCAL ANALYSIS INITIATIVE

A YEAR OR MORE:

The high CosT of Long-Term UnempLoymenT

FISCAL ANALYSIS

challenging problems pew applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life We partner with a diverse range of donors, public and private organizations and concerned citizens who share our commitment to fact-based solutions

and goal-driven investments to improve society.

PEW ECONOMIC POLICY GROUP

Pew FisCal analysis initiative

The pew fiscal Analysis initiative is a division of the pew economic policy group, which promotes policies and practices that strengthen the U.s economy The fiscal Analysis initiative seeks to increase fiscal accountability, responsibility and transparency by providing independent and unbiased information to policy makers and the public as they consider the major policy issues facing our nation Together with outside experts from across the political spectrum, the initiative will provide new analysis and more accessible information

to inform the debate on these issues.

team members ingrid schroeder, Director, pew fiscal Analysis initiative

scott s Greenberger, senior officer sarah nolan, senior Associate ernest tedeschi, senior Associate Douglas walton, Associate evgeni Dobrev, Administrative Associate John morton, managing Director, pew economic policy group

Douglas hamilton, Deputy Director, pew economic policy group

aCknowleDGements

scott s greenberger and Douglas Walton wrote this report with research

assistance from evgeni Dobrev and background analysis from sarah nolan.

The report was reviewed by all team members, Joanna Breslow, pete Janhunen,

samantha Lasky, Lucy nombo, Jeremy ratner and scott Winship.

Design expertise was provided by Do good Design.

This report benefited from the insights and expertise of two external reviewers: gary Burtless of the Brookings institution and Donald marron of georgetown University These experts provided feedback and guidance during the development of the report Although pew’s outside reviewers provided considerable assistance, they are not responsible

for the content of this report.

for additional information on the pew economic policy group and the

fiscal Analysis initiative, please visit www.pewtrusts.org or email us at

pfai-info@pewtrusts.org.

This report is intended for educational and informational purposes.

© April 2010

1 exeCutive summary

anD lonG-term unemPloyment FiGure 1: long-term unemployment, January 1948–march 2010

FiGure 2: overall unemployment rate, by age

FiGure 3: unemployed for one year or more, by age

FiGure 4: unemployed for one year or more, by age

FiGure 5: overall unemployment rate, by education

FiGure 6: unemployed for one year or more, by education

FiGure 7: unemployed for one year or more, by education

FiGure 8: Federal spending on unemployment benefits,

Cobra and snaP, 2007–2010

oF lonG-term unemPloyment FiGure 9: reasons for unemployment, January 1967–march 2010

table 1: unemployment by age

table 2: unemployment by education

table 3: unemployment by industry

table 4: unemployment by occupation

exeCutive summary

The federal government defines “long-term unemployment” as a jobless

period of six months or longer in march 2010, over 44 percent of unemployed

in contrast, during the severe recession of the early 1980s, the percentage of

The media have reported the historically high six-month unemployment figure,

but a new study by the pew fiscal Analysis initiative goes further by calculating the

percentage of people who have been unemployed for a year or more This analysis

further illuminates the extent of the country’s long-term unemployment problem

and its impact on the nation’s fiscal condition

According to pew’s analysis of Current population survey (Cps) datafrom December 2009, 23 percent of the nearly 15 million Americans

translates into 3.4 million people, roughly equivalent to the population

of the state of Connecticut

Long-term unemployment cuts across nearly every industry and occupation

even in fields with overall unemployment rates that are relatively low, workerswho are unemployed are remaining so for a long time

Long-term unemployment is occurring among people of all ages Whileworkers 55 or older are less likely to become unemployed, those who doare more likely to stay unemployed for a long period of time nearly 30percent of unemployed people 55 or older have been jobless for a year

once a person is out of work, a high level of education provides only limitedprotection against a long period of unemployment Twenty-one percent

of unemployed workers with a bachelor’s degree have been without workfor a year or longer, compared to 27 percent of unemployed high school

in the current fiscal year, federal spending on unemployment benefits isprojected to be five times greater than it was in each of the years immediatelypreceding the recession in each fiscal year between 2005 and 2007, annualfederal spending on unemployment insurance ranged between $31 and

$168 billion in fiscal year 2010, of which $81 billion represents spending

on regular benefits The remaining $87 billion represents the cost of additionalunemployment aid that Congress has approved (or is poised to approve)

A YEAR OR MORE:

The high CosT of Long-Term UnempLoymenT

Long-term unemployment also has had a significant impact on the federal budget.

To help the millions of people who are stuck on the unemployment rolls, Congresshas approved extending unemployment benefits beyond the normal 26-week limit

government also has increased food assistance and paid for a greater share of

health-care coverage for those who have been without work for a long time

since people pay less in income taxes when they are out of work, long-term

unemployment also has reduced federal revenue for the economy as a whole,unemployment corresponds with lost output: When labor is underutilized,

the nation produces fewer goods and services than it is capable of producing

if the current recovery follows the pattern set by the last two, hiring will remainsluggish for some time Job losses continued for nearly two years after the 2001downturn, and overall employment numbers did not return to pre-recession highsuntil 2005 The Congressional Budget office (CBo) projects that the unemploymentrate will remain above 9 percent through 2011 and that the rate will not decline to

pew investigates the populations most affected by long-term unemployment through

a new lens by looking at workers who have been unemployed for a year or more andevaluating the fiscal and economic effects

overview oF Current unemPloyment

anD lonG-term unemPloyment

The United states is in the midst of one of its worst periods of unemployment sincethe end of the World War ii The unemployment rate during this recession peaked

at 10.1 percent in october 2009, nearly reaching the post-war record of 10.8 percent

unemployment rate was 9.7 percent in march 2010 This means there were about

in february 2010, 13 states and the District of Columbia had an unemployment ratehigher than 10 percent, and six states (California, florida, michigan, nevada,

Those figures do not capture the full scope of the problem, since they do not include

people who became discouraged and stopped seeking employment, people who

decided to retire early rather than keep searching and young people who have delayed

their entry into the work force The figures also exclude people who would prefer

full-time employment but have been forced to accept part-time work instead When

those workers are counted in the calculation, the unemployment rate in march 2010

from the start of the recession through June 2009—when employment stopped

in addition to the high level of overall unemployment, this recession has been

characterized by the long periods of time that many people have remained on the

unemployment rolls The federal government defines “long-term unemployment”

as a jobless period of six months or longer in march 2010, over 44 percent of

unemployed Americans met or exceeded that standard—the highest rate since World

The high long-term unemployment rate represents the continuation of a

decades-long trend, one that has worsened after downturns but has persisted even during

periods of growth in march 2004, at its most recent peak, the percentage of people

who had been unemployed for at least six months was 23.4 percent in november

2007, the last month of economic expansion before the current recession, 19.5

pew’s analysis further illuminates this problem by calculating the percentage of people who

have been unemployed for a year or more in December 2009, nearly three and a half

Percentage of Total Unemployed

Source: Pew analysis using data from the Bureau of Labor Statistics and the Current Population Survey

Notes: Six-month numbers are seasonally adjusted; one-year numbers are not seasonally adjusted; shaded bars

denote recessions; data for one-year unemployment became available in 1994 and is shown through December 2009

CharaCteristiCs oF the lonG-term unemPloyeD

Unemployment typically hits some groups harder than others, and this recession

is no exception minorities, men, younger workers and less-educated workers areover-represented on the unemployment rolls in December 2009, the overall unemploymentrate for whites was 8.8 percent, but 15.6 percent of African Americans and 12.9 percent

Unemployment among workers between the ages of 20 and 24 rose from 8.7 percent

workers 25 or older without a high-school diploma rose from 8.2 percent in December

overall, older workers are a small percentage of the unemployed The unemploymentrate for workers older than 55 was 7.0 percent in December 2009, below the national

2.1 percent have been out of work for a year or longer, also below the national average

however, pew’s analysis of Cps data shows that once older workers become

unemployed, they are more likely than younger workers to stay unemployed for

a long period of time Among unemployed people between the ages of 20 and 24,only 18 percent had been out of work for a year or longer in December 2009

The percentage steadily increases with age: more than 29 percent of unemployedpeople older than 55 had been out of work for a year or more—a higher rate than

education strengthens job security: The unemployment rate for adults with a bachelor’sdegree or higher is less than half that of workers with just a high school diploma

in December 2009, the overall unemployment rate for workers with a bachelor’sdegree or higher was 4.7 percent, compared to 10.6 percent for high school graduates

degrees, whether employed or unemployed, have been out of work for a year or

however, once a worker becomes jobless, a high level of education provides onlylimited protection against a long period of unemployment: As of December 2009,

21 percent of jobless workers with a college degree had been unemployed for a year

or longer, compared to 27 percent of unemployed workers with only a high school

Long-term unemployment cuts across nearly every industry and occupation even infields with overall unemployment rates that are relatively low, workers who lose theirjobs are remaining jobless for a long time for example, education and health workershave an overall unemployment rate of only 5.6 percent, the lowest rate among the

who are unemployed have been without work for a year or longer, only slightly less

FiGure 3: unemployed for one year or more, by age

Percentage of Total Unemployed

Source: Pew analysis using data from the Current Population Survey, December 2009

Note: Numbers are not seasonally adjusted

FiGure 2: overall unemployment rate, by age

Percentage of Total Labor Force

Source: Pew analysis using data from the Current Population Survey, December 2009

Note: Numbers are not seasonally adjusted

FiGure 4: unemployed for one year or more, by age

Percentage of Total Labor Force

Source: Pew analysis using data from the Current Population Survey, December 2009

Note: Numbers are not seasonally adjusted

FiGure 6: unemployed for one year or more, by education

Percentage of Total Unemployed

30 25 20 15 10 5

Less Than High School

High School Diploma

Some College Bachelor’sDegree AdvancedDegree

Source: Pew analysis using data from the Current Population Survey, December 2009

Note: Numbers are not seasonally adjusted

FiGure 5: overall unemployment rate, by education

Percentage of Total Labor Force

18 16 14 12 10 8 6 4 2 Less Than High School

High School Diploma

Some College Bachelor’sDegree AdvancedDegree

Source: Pew analysis using data from the Current Population Survey, December 2009

Note: Numbers are not seasonally adjusted

FiGure 7: unemployed for one year or more, by education

Percentage of Total Labor Force

4.0 3.0 2.0 1.0

Less Than High School

High School Diploma

Some College Bachelor’sDegree AdvancedDegree

Source: Pew analysis using data from the Current Population Survey, December 2009

Note: Numbers are not seasonally adjusted

the FisCal imPaCt oF lonG-term unemPloyment

A high rate of long-term unemployment has had a direct impact on the federal

budget by prompting the extension of normal unemployment benefits, ratcheting up

spending on other government safety-net programs and by reducing taxable wages

The standard mechanism for providing unemployment compensation is the federal-state

Unemployment insurance (Ui) program, which provides unemployment insurance

pay for most of these benefits in 1970, Congress created the extended Benefits program,

which provides an additional 13 weeks of benefits during times of high unemployment,

pay for half of this program with Ui taxes and the federal government covers the

A third program, the emergency Unemployment Compensation program, is a temporary

extension of benefits that Congress approved in 2008 This program offers different

in each fiscal year between 2005 and 2007, annual federal spending on unemployment

unemployment benefits could reach $168 billion in fiscal year 2010, a more than

regular Ui benefits account for $81 billion of that $168 billion The remaining

$87 billion represents the cost of additional unemployment aid that Congress has approved

This extra spending is the result of a series of steps Congress has taken to help

the unemployed:

Congress approved the first extensions to emergency Unemployment

Compensation benefits in early 2008 By the end of that year, an

unemployed worker could receive benefits of up to 79 weeks in states

with unemployment rates above 6 percent, and up to 66 weeks in states

The American recovery and reinvestment Act of 2009 (ArrA),

enacted in february 2009, included another extension of benefits The

federal government agreed to cover 100 percent of extended Benefits

program costs, increase weekly benefits by $25 and provide an additional

$7 billion to states to encourage them to liberalize their Ui eligibility rules

ArrA also exempted the first $2,400 of unemployment benefits from

assistance in ArrA cost $27 billion in fiscal year 2009 and is projected

Congress approved additional extensions of benefits in 2009 The Worker,

homeownership, and Business Assistance Act extended Ui benefits for

one week in all states, an additional 13 weeks in states with 6 percent

unemployment and an additional six weeks in states with unemployment

rates above 8.5 percent CBo estimated these extensions would cost the

end of 2009, unemployed individuals in many states were eligible for up

to 99 weeks of unemployment compensation through the various programs

and extensions

in early 2010, Congress approved extending unemployment benefits

approved legislation that would extend benefit eligibility through the

end of 2010 This measure, which has not yet become law, would

The federal government has provided additional aid to unemployed workers byhelping them pay for health insurance under the Consolidated omnibus Budgetreconciliation Act (CoBrA) generally, CoBrA allows people who lose theirhealth coverage when they lose their jobs to continue to pay group rates for insurance,though they must cover the entire cost of the premiums themselves Under ArrA,the federal government agreed to pay 65 percent of health insurance premiums for aperiod of up to nine months for workers laid off between september 2008 and the

CBo, the CoBrA provision in ArrA cost about $14.3 billion in fiscal year 2009

high unemployment also has contributed to a sharp spike in the number of individualsand families receiving food assistance spending on the supplemental nutritionAssistance program (snAp), formerly known as food stamps, rose from $35 billion

of the increases in unemployment benefits and selected federal aid

Long-term unemployment also affects the federal budget on the other side of the fiscalledger by reducing income tax revenue and the amount of money flowing into theunemployment insurance pool Ui benefits are taxable, but people on the unemploymentrolls are receiving only a fraction of the income they would be getting if they wereworking As a result, they are paying only a fraction of the taxes

The recession has caused a precipitous decline in federal income tax receipts most ofthe decline is not due to unemployment; much of it is due to lower wages for workerswho still have their jobs, as well as the tax cuts in the various stimulus acts passed in

2009 nevertheless, rising unemployment—along with its corresponding reduction

in personal income—has contributed to the decline